Bloomberg News

Citigroup, 16 Firms Pay California $2.3 Million in Muni Probe

February 13, 2012

Feb. 10 (Bloomberg) -- Citigroup Inc., JPMorgan Chase & Co. and 15 other underwriters reimbursed California $2.3 million last year after a regulatory probe found they used taxpayer funds to pay fees to their lobbyists.

Citigroup, the third-biggest U.S. bank by assets, returned $479,994, while Bank of America Merrill Lynch repaid a combined $456,482 and JPMorgan paid $490,449 for itself and Bear Stearns Cos., which it acquired, according to a spreadsheet California Treasurer Bill Lockyer’s office sent to the Financial Industry Regulatory Authority. The documents were obtained by Bloomberg News through a California Public Records Act request.

The repayments were about 50 percent more than Lockyer had estimated was owed a year ago, when the practice was uncovered in a Finra investigation of the California Public Securities Association, which lobbies state officials for the municipal- bond industry.

“We’re pleased the banks cooperated with our effort to get taxpayers’ money back,” Tom Dresslar, a spokesman for Lockyer, said Feb. 8 in an e-mail. “We’ve put policies in place that ensure bond underwriters never again recoup from taxpayers the cost of fees the banks pay to their lobbying groups.”

The firms paid assessments on the sale of new bonds to the San Francisco-based California municipal-bond trade group, known as Cal PSA, and to the Securities Industry and Financial Markets Association, a New York-based organization representing broker- dealers and asset managers, according to the treasurer’s office. The underwriters used bond proceeds to cover the cost of the fees.

‘It Will Stop’

“It’s improper, it will stop now, it will not happen again, and we will get our money back,” Lockyer said in February 2011. He estimated that the firms had passed along to the state $1.5 million in fees since 2005.

James Cervantes, the chairman of Cal PSA, didn’t respond to a telephone call and e-mail seeking comment on the payments.

“Sifma ended its municipal bond underwriting assessment last year,” Andrew DeSouza, a spokesman, said by e-mail.

The treasurer’s office didn’t collect about $332,598 in the fees it identified, including $267,112 from bankrupt Lehman Brothers Holdings Inc. and $65,486 from Zurich-based UBS AG, which exited the public-finance market, according to the document that Lockyer’s office sent to Finra.

“The use of taxpayer funds to pay the bond assessment fees of the CalPSA and Sifma is not appropriate,” Blake Fowler, director of the public finance division in Lockyer’s office, wrote in letters to the underwriters Feb. 25. “Our office is seeking recovery of such fees that were included as an underwriter’s expense on past state-bond issues.”

Scott Helfman, a spokesman for New York-based Citigroup, Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, and Justin Perras of JPMorgan, based in New York, declined to comment.

Goldman Sachs

Goldman Sachs & Co., the most profitable securities firm in Wall Street history before converting to a bank in 2008, refunded $267,520, according to the documents.

“Goldman Sachs values its long-standing relationship with the State of California and its related issuers, and we look forward to continuing to help the Treasurer’s Office access the capital markets in the most efficient manner,” J. Timothy Romer, a managing director of the firm, wrote in a March 9 letter to Lockyer’s office.

Tiffany Galvin, a Goldman Sachs spokeswoman, declined to comment.

Gina Petrocelli, principal counsel in Finra’s enforcement department, sent a letter to Lockyer’s office Jan. 18 requesting documents showing how much the underwriters were asked to return and how it was calculated, the names of those receiving the requests and the issuers who got the refunds.

Michelle Ong, a spokeswoman for Washington-based Finra, declined to comment.

“We’re satisfied we’ve brought this matter to a successful conclusion,” said Dresslar of the treasurer’s office.

--Editor: Pete Young, William Ahearn

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.


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